Liu Xiaoming: Former Chinese Ambassador to Britain

People's Daily published in page 3 of the issue for April 12, 2013 the article The Observation and Reflections on the Dilemma of Western Capitalism written by Liu Xiaoming, the Chinese Ambassador to Great Britain. The full text is as follows:

In September 2008, the fall of Lehman Brothers marked the beginning of a severe financial crisis in western developed countries. About five years has passed now, this crisis has not yet ended, instead, it has spread from financial and economic issues to political and social fields, thus turning the "emergency" into a "persistent ailment", and making the western world fall into omnibearing dilemmas.

I.  The Major Dilemmas Faced by Western Capitalism

i.      The "maladjustment" of economic development. The financial and monetary measures taken by western capitalist countries for purpose of getting rid of financial and debt crisis have not yet gained obvious effects so far. The reasons for that can be traced to several structural "traps": first, the financial trap. In recent years, there has been an excessive expansion in the financial field of western countries; the financial industry has been expanding with a growth rate that is several times higher than the substantial economy, which has accumulated an unprecedented risk. Take the UK as an example, the industry accounts for only about 21% of its economy, while the output value of service industry-which is led by financial industry-has surpassed 70%. The hollowing-out of industry has weakened the western countries' ability in coping with crisis and achieving growth. The immoderate expansive financial products had resulted in a large quantity of "bubbles", which in the end have burst. Second, the debts trap. Western society has long had the habit of excessive consumption and living on borrowings, and as bad old practices die hard, this habit has resulted in heavy debts burden. Statistics show that the debt of developed countries has accounted for averagely 110% of their GDP by 2012, which marks the highest level after the Second World War. The austerity measures taken in response to the debts crisis has led to sluggish economic growth and rising public discontent, which as a result have imperiled the ruling status of the government and left the government of western countries no way to back down. Third, the welfare trap. For a long time, western countries have taken welfare system as an important means to pacify middle- and lower-class people and maintain social stability, as is known as "from cradle to grave"; however, once the welfare is increased, it would never come down again, therefore, the government finance is already overburdened. The UK has the best-developed welfare system, some people from middle- and lower-class can get relief which is higher than their regular work income, and thus they have lost the aspiration and motivation to work. The costly and extensive welfare system is passably maintainable in non-crisis state; but once the economy goes wrong, it would become an unbearable burden right away. However, the western people who have been used to staying in their comfort zone are not willing to face the unexpected belt-tightening situation. Whether they can jump out of the "welfare trap" or not is a major problem that the future western society has to seek to resolve.

ii.        The "dysfunction" of political system. First, the western electoral system is difficult to select the talented and capable people. Concerning to the selection and development of political figures, the western electoral system is not capability-oriented, rather, it is publicity- oriented, in other words, it is those  capable of putting forward attractive and sonorous slogan and winning popularity among voters that would then take office. The leaders elected by this kind of election system are usually short of practical governing experience. They win the election but are not competent enough, they can't walk the talk, and there are more politicians than statesmen among them. Second, the interests of a political party override the state interests. During the financial crisis period, many western countries had suffered from "the disaster of partisan conflicts". The situation that the private interests of a political party override the state interests has caused serious damage to economy and people's livelihood. The well-known "debt ceiling" dispute between two parties of the United States has nearly caused the shutdown of the federal government for a time. Jacob Weisberg, Editor-in-Chief of the American network politics journal Slate once said: If the two parties continued to act like this, the United States would have no way out but "choose self-destruction"; the short-term cost of this is economic recession, and the long-term one is the accelerated decline of the superpower, which would also affect the fate of the whole western society. These remarks well reflected western people's concerns. Third, "democracy trap" hinders national governance. The manifestation is that, the interest of a small number of people or the irrational will of the public coerces and kidnaps social benefits, making it difficult for crisis governance to make any small progress. For example, the British government has planned to build high speed railways, which would not only improve infrastructure but also boost the economy. However, since a handful of inhabitants along the railways had been making an utmost effort to hinder the construction, the project had to be delayed again and again, and in the end, it was delayed to begin in 2017 and complete in 2032, becoming a project within sight but beyond reach. Chatham House has recently held a seminar on "the future of democratic system", and their conclusion is that, three prominent problems exist in today's western democracy, namely, the "gamification" of democratic election, the "capitalization" of democratic operation, and the "nearsightedness" of democratic decision-making. In other words, the form and procedure of the democracy outweigh its essence and content, thus hindering the national governance.   

iii.      The "failure" of social integration mechanism. First, some extreme social ideological thoughts have gained ground. In recent years, the western mainstream society has had a rising conservative tendency in issues like trade, immigration and religion, etc. Some European countries have witnessed the momentum in which the right wing political party gains more political influence than before. For example, the far-right British National Party has won the seat in European Parliament for the first time; and the far-right Golden Dawn party in Greece has won plenty of seats in the parliamentary election. These right-wing forces even publicly adopted violent means to threaten and attack immigrants. Second, the social mobility is in degradation. It is mainly shown as follows: the gap between the rich and poor has increased, the middle class has shrunken, and the healthy mobility between different levels of society has a tendency of being "solidified". In today's UK, the per capita asset occupied by the 1% richest population is 300 times that of the poorest 10% population. In the 1970s, the 1% richest Americans possessed 8% of the whole national income, while in 2007, the 1% richest population has possessed up to 24% of the wealth of the United States. At the same time more and more middle class people are sliding towards the poverty line. Paul Krugman, a well-known American economist and winner of Nobel Prize in Economics, exclaimed that "the American dream is not there anymore". He acutely pointed out that, the social mobility, national income and social resource distribution are in "a worst period" since the founding of the nation. Third, the social contradiction has intensified. This is mainly seen in the increase of "mass disturbance". The best illustration of this is the "occupy movements" that surged forward in developed countries in 2011 and impacted the main first-tier cities in the West in varying degrees. The nature of "occupy movements" is that, the common people in the West cannot see hope for their future and they want to strive for changes. Besides, several world-shaking events of severe violence, shooting or mass disturbance have taken place in the United States, the UK, France and even a north-European country, which well displayed that the social contradiction has intensified. Under the background that the social issues have accumulated and become complicated, these kinds of mass disturbance and vicious events might continue to happen again and again in the West.

iv.      The anomie of ideology and morality. First, the moral level of political elites is dropping. The most representative example is the parliamentary expanses scandal in the UK. In this scandal quite a few members of parliament took advantage of their positions to use the government expenses to pay the bill of their personal expenses-which range from housing mortgage to toilet paper. The number of the parliament members and the high-ranking of them involved were quite rare in the political history of contemporary capitalism. Second, big enterprises are losing their business ethnic standards. The so-called "interest rate scandal" is the most highlighted one among the examples. Barclays Bank, the second largest commercial bank in the UK, along with many international commercial banks, was found to have manipulated "London inter-bank offer rate" for the purpose of seeking exorbitant profits. This manipulative practice has long under tacitly consent of its regulator and has become the "latent rules" of this industry. Third, moral issues occur frequently among social elites. Last year, the exposure of the well-known BBC host Jimmy Seville's scandal of sexually assaulting more than 300 people during 40 years' time has become a heavy bomb, which badly hit the BBC, who has always considered itself as "press ethics bodyguard", and the British society, which has always been proud for its gentility. The above scandals relate to official, business and social ethics under capitalist system. They reflected that the value and view of interest of capitalist mainstream society have been deeply eroded; also, they've revealed the limitation of the "checks and balances" of capitalism. As a result, these scandals have shaken people's trust towards capitalist political power, business power and discourse power of the mainstream society.

II.  How to Look Upon the Western Capitalism in Dilemma

We should adopt "the doctrine that everything has two aspects" to observe western capitalism in a dialectical and scientific view. On one hand, the crisis and dilemmas did have a major impact on western society. Alan B. Krueger, head of the White House Council of Economic Advisers, estimated that during late 2007 when the financial crisis appeared in a small-scale to early 2009 when the crisis went out all round, the economic losses of the United States had reached to as high as USD 16 trillion, equivalent to a quarter of the total wealth of the nation. The UK is discussing whether they will experience the "lost decade". In general, since the problems and dilemmas caused by the crisis cannot be resolved promptly and completely, western countries may continue to stay in a sub-health state for quite a long period, and its negative effects to developed economies and world economy will continue to emerge.

On the other hand, the West still has a relatively strong power and their productive forces still have room to be further released. From the perspective of the core productivity, core hard power and core soft power, the West still has an obvious overall advantage despite the severe impact. The GDP from the United States, Europe and Japan still accounts for more than 60% of the gross output of global economy. Western countries still take the lead in the frontier of modern science, enjoy a pioneering advantage in military security area, and control the international rules and discourse power by and large. "The decline of the West" would still be a long way to go.

Of course, western countries have also been reflecting and paying close attention to adjustment and reform in the face of the crisis. They mainly focus in a few aspects: first, promote institutional reform. For example, the Europe is promoting the monetary union further into fiscal union, attempting to dissolve the root cause of debts crisis by establishing unified financial discipline and in the meantime make an important step towards establishing a political union. The United States and Europe have both put forth efforts to transform the financial sector and reform the revenue and welfare system. Europe has put "capping" to the money award of banking senior executives by legislative method. Moreover, in order to rectify the journalism mired in scandals, the UK unprecedentedly set up a press regulator, thus ending the history of its long boasted "freedom of the press". Second, look for new economic driving forces. Main developed capitalist countries have unveiled innovation-centered industrial policies in succession, and increased investment has gone to fields like artificial intelligence, medical technology, information communication, 3D printing and clean energy, etc. Countries like the United States and Canada have achieved major breakthrough in the development of shale gas. The United States and Europe are preparing to launch the negotiation on "trans-Atlantic trade and investment partnership agreement", in an attempt to boost economic development by reducing trade cost. Third, make strategic adjustment. Since the financial crisis, there has been a rising tendency in the West to shift their focus to domestic affairs. Especially because of the impaired power, western countries have to rearrange its economic plan to further invest in fields of economy and people's livelihood. In the next decade, the US will cut USD 800 billion of its military spending; the UK will reduce 8% of its military input within five year, and other countries in Europe will also repeatedly reduce their expenses in national defense.

III.   Inspiration from the Western Capitalism Dilemmas

Inspiration No.1:By observing the advantage of socialist road, we should be confident in carrying on the socialist road. Whether in promoting reform and opening up or in coping with international financial crisis, the socialist road with Chinese characteristics has proved its effectiveness and scientificalness through genuine performance, and has gain wide reorganization from international society including more and more people of vision in the West. The western theoretical cycle has started a discussion centering on China's road since last year. Why Nations Fail, written by two well-known American scholars-Daron Acemoglu from MIT and James Robinson from Harvard has aroused controversy in western academic circles. According to this book, the countries who don't adopt western democratic system would ultimately lead to governance failure, therefore, China's road is unsustainable and it would be proved to be a short-lived development practice in the end. Other western scholars expressed strong query at this point of view though. Gideon Rachman, a well-known columnist of Financial Times, pointed out that, China's road of reform and opening up has helped hundreds of millions of people get rid of poverty during the past 30 more years and maintain a rapid growth for as long as one or two generations. The curtly judgment to China's road would not be likely to persuade western people anymore. If western countries continued to ignore the truth, they would fall into a self-deceiving thought crisis. Recently, Good Governance in the 21st Century: Taking a Middle Road which Integrates the West and the East, a book published by another two scholars from the United States, has also received extensive attention. This book states clearly that future national and international governance should adopt civilization achievements from both the East and the West. People of vision in the West have an increasingly optimistic view towards China's road, we ourselves should carry on the road with firm confidence.

Inspiration No.2:By observing the advantage of socialist theory, we should be confident in adhering to the socialist theory. One of the biggest advantages of the socialism with Chinese characteristics is that, we have insisted and developed a whole set of theoretical system. By contrast, the governing parties of the West have a ubiquitous problem, namely, they are lost in theoretical confusion. They lack mature theoretical direction and are short of systematic theoretical development. Every party goes its own way when it comes into power, they don't have consistent approach to resolve economic and social problems. Statistics from the Guardian shows that the UK coalition government has taken 35 U-turns since its coming into power. This illustrates that the governing parties in the West lack strategic thinking for economic and social development and the lasting political stability of the nation, not to mention summing up their governance experience consciously and conducting theoretical development. Western countries taught us a lesson: if a country wants to have good development with little suffering, she must insist on a theoretical system which is effective and keeps abreast of the times, otherwise, she cannot avoid making detours. And our advantage lies in the developing theoretical system that keeps a foothold in China and develops with the times, as well as the effective theoretical direction.

Inspiration No.3:By observing the advantage of socialist system, we should be confident in sticking to socialist system. Make a general survey of western capitalist dilemmas, and then make a comparison to the great achievements of building socialism with Chinese characteristics, we have every reason to keep confident for the socialist system strategy. The socialist institutional system which we've been sticking to and developing has been proved by facts that it can maximally adjust itself to the objective reality of contemporary China and meet the objective demand of the development of productive force. Socialist institutional system has strong social mobilization ability, especially in concentrating on doing big things, constantly improving people's lives and comprehensive national power of socialist country, and effectively coping with the complicated challenges in the time of globalization, informationization and multi-polarization. The British usually exclaim China's efficiency. They often make a comparison between T3 Terminal of Beijing Capital International Airport and T5 Terminal of London Heathrow Airport, the former took 4 years to build, while the latter took as many as 20 years to finish. As the Independence goes, "Compared to China's speed, British system is far too rigid." Even The Times, an old brand mainstream newspaper in the West, has called for western leaders to learn China's governance efficiency to overcome the disadvantage of western system in a piece of editorial early this year, which is rare in its history.

The scientific understanding of contemporary western capitalism is not only a theoretical issue, but also a major practical issue. In-depth study and accurate grasp of this issue are of great significance to the development and construction of our country. The second decade of this century is a critical period for the realization of the comprehensively build-up of a well-off society and comprehensively deepening the reform and opening up. This requires that we must do well in both the internal and external work and strive for taking the high ground of development to be well-positioned for winning the future.